Stock Exchange Governance Framework
Stock exchange governance in India is governed by SEBI's Market Infrastructure Institutions (MII) circular framework, which mandates that recognised stock exchanges maintain a board with a majority of independent directors, at least one Public Interest Director (PID) nominated by SEBI, fit-and-proper criteria for all directors, and conflict-of-interest restrictions designed to protect market integrity over commercial interests.
Following the demutualisation of BSE in 2007 and the structural transformation of Indian exchanges from member-owned cooperatives to shareholder-owned public companies, SEBI identified the need for an enhanced governance framework that addressed the unique conflict-of-interest dynamics of exchange governance. Exchanges simultaneously operated as profit-seeking commercial entities and as first-line regulators of their trading members.
SEBI's Report of the Bimal Jalan Committee (2010) and subsequent SEBI circulars on MII governance laid out the framework that required recognised stock exchanges to maintain boards with at least 50% independent directors. The concept of the Public Interest Director was introduced: PIDs were nominated by SEBI from a panel it maintained and were explicitly tasked with representing the interests of market participants and the broader public rather than the interests of shareholders or trading members.
The composition requirements for NSE and BSE boards specified: a shareholder director (representing equity shareholders), trading member directors (limited in number to prevent regulatory capture), independent directors, and PIDs. The Managing Director and CEO of the exchange was typically an ex-officio board member. All directors were required to satisfy SEBI's fit-and-proper criteria, which assessed educational background, professional track record, absence of disqualification under applicable laws, and absence of conflicts.
Key governance committees at exchanges included the Regulatory Oversight Committee, which oversaw the exchange's self-regulatory functions and compliance with SEBI regulations; the Nomination and Remuneration Committee, which managed director appointments; and Audit Committees with independent composition. SEBI reserved the right to nominate or approve key management personnel at exchanges, including the CEO appointment.
The governance framework also specified ownership restrictions: no single investor or group of related investors could hold more than 15% equity in a recognised stock exchange, preventing any single entity from acquiring effective control. Foreign exchanges and foreign investors could hold up to 49% in aggregate. These restrictions were designed to prevent the exchange from being captured by interests that might compromise its regulatory functions.
SEBI's oversight of exchange governance extended to periodic inspections, review of board minutes, assessment of regulatory compliance, and action against exchanges that failed to meet governance standards.